Split-off a company (demerge) in Netherlands
One possible strategic business decision that a company might make is to undergo a demerger, in which some or all of its commercial activities are transferred to another entity. In essence, a demerger involves dividing a company’s ongoing operations into separate parts, leading to the creation of a new independent entity or the sale/dissolution of the divided unit. The company that transfers its activities is called the demerged entity, while the company that receives the transferred activities is known as the resulting company.
Types of demergers
There are three main choices for demerging a company in the Netherlands, each with its own tax advantages.
Statutory demerger
A situation in which a new company is created and shares are given to the shareholders of the parent company is known as a “statutory demerger.” In a “three-cornered” demerger, the parent company transfers the new subsidiary to another company, which then gives shares in the new company to the shareholders of the parent company in exchange for the distribution. Another option is for the parent company to directly pay a dividend to its shareholders on the new shares.
Share capital reduction demerger
A different method for separating a company involves decreasing the parent company’s share capital. This involves reducing the capital of the transferring company, and transferring a trading operation to new shareholders or holding companies controlled by them. This type of demerger through reduction of capital can be beneficial.
- When a statutory demerger or liquidation demerger isn’t an option
- There are non-member state parties
- The entities aren’t trading companies
- None of the enterprises in the mix should be liquidated
- You intend to sell some group members or float them
- The distributing firm does not have sufficient distributable reserves
Liquidation demerger
When a company is dissolved, its assets are passed on to new entities through a liquidation demerger. The shareholders of the original company receive shares in the new businesses as compensation for their claims during the dissolution process. If shareholders have different opinions on the company’s future and wish to go in separate directions, a demerger may be a viable option. This strategic decision enables each shareholder to pursue their own path independently.
Benefits of demerging
One of the key reasons why companies choose to demerge is to create more value for their shareholders. After a demerger, the newly formed companies often issue shares to their shareholders. If the demerger results in the anticipated benefits, profits and share prices of the two companies will likely increase. This is because separate management teams are now solely responsible for their own successes and failures, without interference from the main board. With clearer accountability for results, there is greater incentive for teams to achieve financial goals. Additionally, demerging allows CEOs to focus on their specific expertise, and each new business can raise capital independently rather than relying on centralized budgets. In cases where a joint venture or acquisition does not yield the expected outcomes, a demerger enables each partner to limit their losses and continue managing their own company autonomously.
Considerations before demerging a company
In order to successfully carry out a demerger in the Netherlands, it is important to carefully assess different factors beforehand. This involves examining the company’s assets, liabilities, and operations, and understanding the legal and regulatory obligations. It is also crucial to consider the impact on stakeholders, such as shareholders, employees, customers, and suppliers, in order to minimize risks and disruptions. In summary, careful planning and consideration of these factors are necessary for a successful demerger process in the Netherlands.
Contact us
If you are thinking about a demerger for your company in the Netherlands, our team is available to help you through the entire process. We have extensive knowledge in corporate law and business transactions, allowing us to offer personalized advice to ensure a seamless and prosperous demerger process. Whether you require help with legal regulations, financial assessments, or engaging with stakeholders, we are dedicated to assisting you in reaching your objectives efficiently. Get in touch with us now to arrange a meeting and see how we can aid your company’s demerger process.